The Clients: A husband and wife with one buy to let property owned in their limited company. They jointly owned their own residential home.
The Property: Our clients existing home was a four-bedroom terraced house in the South of England with excellent commuter links to local towns and cities.
The Finance: The couple wished to buy a larger residential home but retain their existing property as a buy to let. Their accountant had advised that they sell their current home to their limited company before purchasing their new home. If they retained the existing home in their personal names, they would have to pay the second-home stamp duty surcharge on their new home, which was more expensive than their current property. Therefore, it was more cost-effective for the limited company to pay the surcharge when purchasing their existing home. Furthermore, as higher band taxpayers, their accountant advised that owning another buy to let in their limited company would be more tax-efficient in the long run.
Therefore, they needed a limited company buy to let mortgage with which to purchase their existing home, using the property’s equity as a director’s loan deposit. Our clients wanted a like for like mortgage with no additional borrowing.
The Challenge: As our clients would be purchasing their new home alongside the sale and purchase of their old home, we would need to find a buy to let lender that was comfortable with this situation as many lenders will not lend where the borrow has lived in the property.
Our clients had based the value of the property on a remortgage valuation report they received a couple of years earlier – this was the price the property was being sold to their company at. They did not want this to be any higher as this would increase their stamp duty bill – lenders will require that the property is sold at current market value.
The Solution: Accustomed to complex personal to limited company ownership transactions, we had a good idea of which buy to let lenders would accommodate this deal. Having assessed the available mortgage rates, we approached one we believed would work with us and offered our clients a competitive rate.
The lender was comfortable proceeding with the case but did have some requirements. Firstly, our clients would have to instruct two sets of solicitors to handle the property’s sale and purchase elements separately. Secondly, due to their new residential home’s concurrent purchase, the buy to let lender stipulated that the two purchase transactions would have to complete simultaneously and required to see additional paperwork relating to the other purchase. Although more complex than our clients had initially thought, they were happy to proceed on this basis.
Unfortunately, the valuation did come back higher than our clients initially thought. Whilst this didn’t impact the buy to let mortgage rate, it did mean they had to pay a slightly higher stamp duty charge than they first thought. Despite these intricate complexities, the deal did complete, much to the delight of our clients! Here are the details:
Property value: £395,000
Loan amount: £281,250
Rate: 3.39% five-year fixed
Term: 25 years, interest-only
Mortgage payment: £800.26
Lender arrangement fee: £1,999 due on completion
Rental income: £1,495
Application: SPV Limited Company
Consultant: Agata Rogozinska, 01732 471602
31st March 2021